It may sound like a circular argument, but the only way to stop inflation is to stop companies from raising prices. And the only way to stop that is to get inflation under control. And that could mean an end to the interest rate hike pause.
After Tuesday’s latest release of inflation data, warnings from Bank of Canada governor Tiff Macklem in his testimony to parliament last week offer a stark reminder of how difficult, but how essential, it is to convince the sellers of goods and services to stop raising prices.
While overall inflation has eased to 5.9 per cent, that’s still high. Groceries are up another 11.4 per cent.
That’s difficult for consumers, whether businesses buying from other businesses or ordinary Canadian shoppers. Macklem said they simply cannot distinguish reasonable and necessary price rises to cover rising costs from price hikes merely to pad the bottom line.
He warns sellers: if price hikes continue at the pace we’ve seen recently, he may be forced to take action.
Hidden in plain sight
The latest slowdown in rising prices, finally falling below six per cent for the first time since February a year ago, is being read by many as a favourable sign.
Though it’s useful to view that number in context: that’s 5.9 per cent higher than a year ago when prices were already rising quickly, or what economists call the “base-year effect.”
A fall in global oil prices, which last week Macklem described as the “biggest contributor” to falling inflation, obscure the rising cost of other consumer necessities, like food.
As people as diverse as Federal Reserve chair Jerome Powell and Canadian labour economist Jim Stanford have noted, despite continued talk of a wage-price spiral, wages have not led the post-COVID bout of inflation. Wage hikes have steadily been below inflation. Latest Canadian jobs figures show wage hikes are declining, currently running at 4.5 per cent, more than a full percentage point below rising prices.
“It looks more like profit-price inflation to me where companies very opportunistically have taken advantage of a disruptive moment to soak consumers for more than they need to,” was Stanford’s analysis in an interview with the CBC last year.
And in last Thursday’s testimony to the Parliamentary Finance Committee, Macklem seemed to agree.
The failure of businesses to ‘normalize’ pricing, testified Bank of Canada governor Tiff Macklem, is one of the things that could force the central bank to end its pause and keep raising interest rates. (Blair Gable/Reuters)
Macklem explained that a period of generally rising prices is a special opportunity for sellers. In the confusion of widespread price increases, consumers simply cannot distinguish between reasonable price increases due to a discreet cause — a frost in Florida that raises orange prices, for example — and price hikes meant to squeeze the customer and increase profits.
“When an economy is overheated, when inflation is high, when people see prices of everything going up, it makes it easier for companies to raise their prices because people can’t tell, is this … a generalized increase or is this just this company raising their prices?” testified Macklem last week.
In economics, the general principle is that sellers want to raise their prices as much as possible to maximize their profits. One of the reasons businesses have trouble doing that in normal, non-inflationary times is that consumers keep an eagle eye on price hikes and shun sellers they think are being greedy. But during periods of high inflation, unjustified individual price hikes are harder to distinguish and therefore retailers are harder to punish.
WATCH | What’s causing inflation to slow:
Chicken prices soar as inflation cools
15 hours ago
Duration 1:46
Inflation in Canada is down to 5.9 per cent, but food prices are still high with chicken becoming a big-ticket item on the grocery bill.
“When the economy is better balanced between supply and demand, the competitive function works much better and it’s a lot more difficult for companies to raise prices because they’ll lose market share,” said Macklem.
“They’ll lose their customers.”
Bigger, more frequent price hikes
This round of inflation had real causes: when supply chains suddenly gummed up and oil prices soared, many sellers were forced to raise their prices. Higher fuel costs and a shortage of cargo vessels meant goods cost more to ship. High worldwide demand for goods in short supply pushed input prices higher.
Essentially everyone who could was just doing their best to pass on their higher costs causing an unfamiliar flurry of pricing activity that had not been seen in decades, Bank of Canada research showed.
“The distribution of price-setting behaviour of companies changed,” Macklem told the parliamentary committee members. “Pricing increases were bigger, they were more frequent.”
But as supply chains opened up those price hikes should have begun to cool down.
The debate over whether grocery retailers in particular have raised prices too much continues to rage and may be revisited later this week when food retailer Loblaws unveils its corporate results on Thursday. The company, like other grocery chains, insists its price rises reflect increased costs.
Critics have pointed to soaring profits.
The correlation between Loblaw’s share price and the take-off of inflation in Canada is uncanny. While grocery CEOs complain they are just victims of inflation like the rest of us, merely “passing on” higher costs, their investors know otherwise. /2 <a href=”https://t.co/U1GParvi0u”>pic.twitter.com/U1GParvi0u</a>
It may be that shareholders will rejoice if they see profits continue to rise at the expense of consumer prices but if the pace and size of price hikes don’t go back the way they used to be, to “normalize” in Bank of Canada language, Macklem says he has a surprise up his sleeve.
There are many sceptics who say inflation has no intention of going peacefully and that it will be “sticky.” The last time rising prices got seriously out of hand, “The Great Inflation,” only ended in the 1980s after a brutal interest-rate shock that saw mortgage rates approach 20 per cent. That ended inflation with a bang and a devastating recession.
So far central bankers seem confident that won’t happen this time. But if businesses don’t get pricing under control soon, Macklem said he will have to do something about it.
“That process of normalization is one of the key things we’re watching to evaluate whether we raised interest rates enough to get inflation back down to target,” testified Macklem.
“And if we don’t see it continue to normalize, we will need to do more.”
VANCOUVER – Contract negotiations resume today in Vancouver in a labour dispute that has paralyzed container cargo shipping at British Columbia’s ports since Monday.
The BC Maritime Employers Association and International Longshore and Warehouse Union Local 514 are scheduled to meet for the next three days in mediated talks to try to break a deadlock in negotiations.
The union, which represents more than 700 longshore supervisors at ports, including Vancouver, Prince Rupert and Nanaimo, has been without a contract since March last year.
The latest talks come after employers locked out workers in response to what it said was “strike activity” by union members.
The start of the lockout was then followed by several days of no engagement between the two parties, prompting federal Labour Minister Steven MacKinnon to speak with leaders on both sides, asking them to restart talks.
MacKinnon had said that the talks were “progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved” — a sentiment echoed by several business groups across Canada.
In a joint letter, more than 100 organizations, including the Canadian Chamber of Commerce, Business Council of Canada and associations representing industries from automotive and fertilizer to retail and mining, urged the government to do whatever it takes to end the work stoppage.
“While we acknowledge efforts to continue with mediation, parties have not been able to come to a negotiated agreement,” the letter says. “So, the federal government must take decisive action, using every tool at its disposal to resolve this dispute and limit the damage caused by this disruption.
“We simply cannot afford to once again put Canadian businesses at risk, which in turn puts Canadian livelihoods at risk.”
In the meantime, the union says it has filed a complaint to the Canada Industrial Relations Board against the employers, alleging the association threatened to pull existing conditions out of the last contract in direct contact with its members.
“The BCMEA is trying to undermine the union by attempting to turn members against its democratically elected leadership and bargaining committee — despite the fact that the BCMEA knows full well we received a 96 per cent mandate to take job action if needed,” union president Frank Morena said in a statement.
The employers have responded by calling the complaint “another meritless claim,” adding the final offer to the union that includes a 19.2 per cent wage increase over a four-year term remains on the table.
“The final offer has been on the table for over a week and represents a fair and balanced proposal for employees, and if accepted would end this dispute,” the employers’ statement says. “The offer does not require any concessions from the union.”
The union says the offer does not address the key issue of staffing requirement at the terminals as the port introduces more automation to cargo loading and unloading, which could potentially require fewer workers to operate than older systems.
The Port of Vancouver is the largest in Canada and has seen a number of labour disruptions, including two instances involving the rail and grain storage sectors earlier this year.
A 13-day strike by another group of workers at the port last year resulted in the disruption of a significant amount of shipping and trade.
This report by The Canadian Press was first published Nov. 9, 2024.
The Royal Canadian Legion says a new partnership with e-commerce giant Amazon is helping boost its veterans’ fund, and will hopefully expand its donor base in the digital world.
Since the Oct. 25 launch of its Amazon.ca storefront, the legion says it has received nearly 10,000 orders for poppies.
Online shoppers can order lapel poppies on Amazon in exchange for donations or buy items such as “We Remember” lawn signs, Remembrance Day pins and other accessories, with all proceeds going to the legion’s Poppy Trust Fund for Canadian veterans and their families.
Nujma Bond, the legion’s national spokesperson, said the organization sees this move as keeping up with modern purchasing habits.
“As the world around us evolves we have been looking at different ways to distribute poppies and to make it easier for people to access them,” she said in an interview.
“This is definitely a way to reach a wider number of Canadians of all ages. And certainly younger Canadians are much more active on the web, on social media in general, so we’re also engaging in that way.”
Al Plume, a member of a legion branch in Trenton, Ont., said the online store can also help with outreach to veterans who are far from home.
“For veterans that are overseas and are away, (or) can’t get to a store they can order them online, it’s Amazon.” Plume said.
Plume spent 35 years in the military with the Royal Engineers, and retired eight years ago. He said making sure veterans are looked after is his passion.
“I’ve seen the struggles that our veterans have had with Veterans Affairs … and that’s why I got involved, with making sure that the people get to them and help the veterans with their paperwork.”
But the message about the Amazon storefront didn’t appear to reach all of the legion’s locations, with volunteers at Branch 179 on Vancouver’s Commercial Drive saying they hadn’t heard about the online push.
Holly Paddon, the branch’s poppy campaign co-ordinator and bartender, said the Amazon partnership never came up in meetings with other legion volunteers and officials.
“I work at the legion, I work with the Vancouver poppy office and I go to the meetings for the Vancouver poppy campaign — which includes all the legions in Vancouver — and not once has this been mentioned,” she said.
Paddon said the initiative is a great idea, but she would like to have known more about it.
The legion also sells a larger collection of items at poppystore.ca.
This report by The Canadian Press was first published Nov. 9, 2024.
